Mobile Wallets Begin to Bulge

Hungry? No cash in your pocket? Not a problem if you were an employee at SEFCU, the $2.4 billion upstate New York credit union, during an ambitious pilot it ran last summer and fall to test an FIS mobile wallet product at Zia Maria’s Cafe at the SEFCU corporate headquarters in Albany.

The pilot met with such success that SEFCU decided to continue it beyond an initial 90 day test run.

What can you buy? Food and drinks at this quick-serve eatery that functions as the employee cafeteria, serving a pool of some 300 employees. Average checks range from $4 to $10.

To participate employees need an iPhone or an Android phone and, in the pilot, 59 joined in, according to data collected and analyzed by Javelin Strategy + Research.

Mary Monahan, a Javelin analyst, stressed that the potential importance of the SEFCU pilot transcends the limited user base. That is because this FIS wallet, developed in association with Boston apps developer Paydiant, is cloud-based, smartphones don’t need special hardware to access the wallet features, but they do need a consistent Internet connection, said Monahan. Connectivity, or lack thereof, will make cloud-based wallets no-goes in many settings, she acknowledged.

The plus is that phones do not need special near field communication chips; neither does the merchant need a special POS terminal to process charges, said Monahan. That gets the pilot up and running quickly and inexpensively.

Very few phones on the market currently come with NFC chips, and not many merchants have NFC capable terminals.

The SEFCU pilot is one of many that are probing different aspects of mobile wallets, each of which builds off the assumption that the time is here for consumers to jettison leather wallets and plastic cards in favor of paying with a smartphone.

The space is hectic with activity. Calvin Grimes, mobile product manager at Fiserv, said, “There is a lot going on with mobile wallets. We are seeing many pilots in the U.S.” He added that the pilots seem small, but a lot is at stake. “The ultimate makeup of the U.S. infrastructure remains to be seen. The end result needs to satisfy consumers, merchants, and financial institutions.”

Grimes acknowledged that Fiserv, too, has conducted pilots overseas. “We are looking for our next steps in the U.S.” He declined to provide further details, but added that Fiserv too would be announcing details of U.S. mobile wallet pilots soon.

PSCU, the St. Petersburg, Fla., based CUSO, also has announced plans for a mobile wallet, rooted in MasterCard’s PayPass technology, that it hopes to roll out to credit unions.

Back in upstate New York, the Javelin report described how the process works at SEFCU.

“When consumers indicate they would like to make a mobile wallet transaction, the cashier inputs the transaction and receives a QR code from the FIS service. The consumer selects the ‘pay’ function in the mobile wallet app on their phone, and scans the QR code. The code is sent over the cloud to the FIS service.”

Big benefits, said Monahan, included “the lowered interchange fee. They could process it as a PIN debit. Reduced fraud will also be a benefit.”

She acknowledged that hardware-based wallets, likely involving NFC. will probably prevail, if only because they sidestep the connectivity issues. In the meantime, said Monahan, “You will see a lot of cloud based wallets, until we have the terminals and phones with NFC chips. Cloud-based wallets will get people used to using their phones for payments. Chips make more sense; they work regardless of whether you are connected or not. But cloud-based wallets are a good interim solution.”

As for why SEFCU decided to participate in the pilot, the Javelin report quoted Cheryl Collier, SEFCU vice president, operations. “Our industry has seen all of the opportunity costs of surrendering our payment revenue streams to third-party intermediaries such as PayPal and Starbucks, so waiting on the sidelines was just not an option. We saw it as an opportunity to offer value-added services to our credit union members.

SEFCU President/CEO Michael Castellana set the vision early on that our organization couldn’t sit on the sidelines of this payments revolution. But that we had to become actively involved in the various emerging payment technologies.... Once the vision was set, our focal point was centered on not having our members open another FI’s or non-FI’s wallet but to open a SEFCU wallet.”

SEFCU had not made an executive available to Credit Union Times to elaborate on these points by press time.

Is this the year that mobile wallets finally take off? Siva Narendra, CEO of Portland, Ore.-based NFC developer Tyfone, which has announced wallet deals with several credit unions, insisted there would be lift off for wallets in the next three or four quarters. Merchant acceptance, especially at big national retailers, is growing and, he stressed, “financial institutions need to develop their own wallet strategy now.”

The threat of disintermediation, FIs losing traction in the payments equation, displaced by new technologies and their providers, is real, stressed Narendra.

“Today, mobile wallet use is on a very small scale,” acknowledged Narendra. “But that is changing fast.”